Life, the world and Interest Rates East Midlands Councils 7 April 2011 Simon Cossey Director, Financial Markets

Life, the worldand Interest Rates

East Midlands Councils7 April 2011

Simon Cossey Director, Financial Markets

LLOYDS BANKING GROUP 2

WHATEVER HAPPENED TO THE SLOW RECOVERY?

-6.0

-4.0

-2.0

0.0

2.0

4.0

2006 2007 2008 2009 2010

%

QUARTERLY

ANNUAL

Long-term average

6.0


BUSINESS CONFIDENCE IS RECOVERING AND INVESTMENT SPENDING WILL FOLLOW…

% increase in year

98 99 00 01 02 03 04 05 06 07 08 09 10-40

-30

-20

-10

0

10

20

30

40

50

60

-60

-50

-40

-30

-20

-10

0

10

20

Business investment, lhs

UK business confidence, rhs

Source: Thomson Datastream

% balance


CORPORATE SURPLUS IS HEALTHY (18% OF GDP)

-6

-4

-2

0

2

4

6

1987 1989 1991 1993 1995 1997 1999 2001 2003200520072009

% of GDP, 4 qma

-6

-4

-2

0

2

4

6

1987 1989 1991 1993 1995 1997 1999 2001 2003200520072009

% of GDP, 4 qma

£270BN


IN-HOUSE BUSINESS BAROMETER POINTS TO SLOWER GROWTH

-80

-60

-40

-20

0

20

40

60

80

Jan-0

6

Jul-

06

Jan-0

7

Jul-

07

Jan-0

8

Jul-

08

Jan-0

9

Jul-

09

Jan-1

0

Jul-

10

Jan-1

1

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

% bal %Qtr

LTSB Business Barometer – economic prospects (3m

lead)

Monthly GDP (RHS)

GDP growth

projected to slow sharply


UK HOUSEHOLDS AMONGST THE MOST INDEBTED IN THE WORLD

166

105

81

111

69

96

124114

4834

180

160

140 139130 128

11298

6960

0

20

40

60

80

100

120

140

160

180

200

Switz

erla

nd

Unite

d Ki

ngdo

m

Sout

h Ko

rea

Canad

a

Spai

n

Unite

d St

ates

Japa

n

Germ

any

Fran

ce

Italy

20002008

Hou

sehold

deb

t %

dis

posa

ble

inco

me

Source: National Statistical Agencies


DELEVERAGING POSES A CONTINUED IMPEDIMENT TO PRIVATE SECTOR RECOVERY

Source: Bank of England

-10

-5

0

5

10

15

20

25

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Lending to households

Lending to corporates

%yr


HOUSEHOLDS SAVING LESS TO FINANCE SPENDING

Source: ONS

-6

-4

-2

0

2

4

6

8

10

12

14

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

UK saving ratio

UK consumer spending %Yr

%


PUBLIC SECTOR EMPLOYMENT BY REGION

29.226.0 24.7 24.3

22.1 21.9 20.8 20.4 20.418.1

16.4 16.2

20.7

5

15

25

35

Nort

hern

Ire

land

Wale

s

Sco

tlan

d

Nort

h E

ast

York

s &

Hum

ber

Nort

h W

est

Lond

on

South

West

West

Mid

lands

East

Mid

lands

South

East

East

Unit

ed K

ing

dom

% (as share of total)

Source: LTSB/ONS


THE HOUSING MARKET IS STABLE BUT SUBDUED…

% increase in year

2008 2009 2010-80-60-40-20

0

20406080

100120

140

Numbers approved

Value of loans


INTEREST RATES NOT SET TO RISE UNTIL END OF 2011 AT THE EARLIEST

Source: Lloyds

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

3.0

6

9.0

6

3.0

7

9.0

7

3.0

8

9.0

8

3.0

9

9.0

9

3.1

9.1

3.1

1

9.1

1

3.1

2

Short term interest rates, %

US

Euro

Forecasts

UK


LOWER INTEREST RATES HAVE SUPPORTED DISPOSABLE INCOME

Source: Lloyds

3

3.5

4

4.5

5

5.5

6

6.5

7

7.5

8

Q1 20

00

Q3 20

00

Q1 20

01

Q3 20

01

Q1 20

02

Q3 20

02

Q1 20

03

Q3 20

03

Q1 20

04

Q3 20

04

Q1 20

05

Q3 20

05

Q1 20

06

Q3 20

06

Q1 20

07

Q3 20

07

Q1 20

08

Q3 20

08

Q1 20

09

Q3 20

090

5000

10000

15000

20000

25000

Standard variable rate

Property income paid (RHS)

% £mn


CONSUMPTION GROWTH TO BE WEAKER LOOKING FORWARD

Source: Lloyds

Consumption growth moderation

-4

-3

-2

-1

0

1

2

3

4

2004 2005 2006 2007 2008 2009 2010F 2011F 2012F 2013F

YoY % Avg 2.36% Avg 1.40%


…INTEREST RATES SHOULD REMAIN LOW BEFORE RISING SHARPLY ONCE RECOVERY TAKES HOLD

0

0.5

1

1.5

2

2.5

3

3.5Cur

rent

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

LTSB 3-mth Libor forecast %

Market expectation of 3-mth Libor %

%

0

0.5

1

1.5

2

2.5

3

3.5Cur

rent

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

LTSB 3-mth Libor forecast %

Market expectation of 3-mth Libor %

%


CPI & RPI INFLATION FORECAST

- 2

-1

0

1

2

3

4

5

6

2007 2008 2009 2010 2011 2012

CPI inflation

RPI inflation

- 2

-1

0

1

2

3

4

5

6

% yr

-

-

LTSB Forecast

-

-

Source: LTSB/ONS


IMPORTANT NOTICE

This presentation does not constitute or imply an offer or commitment whatsoever on the part of Lloyds TSB Bank plc (“Lloyds TSB”). Any such offer may only be made after the negotiation of satisfactory documentation and only after appropriate credit authority has been obtained. The pricing discussed herein is based on our view of current market conditions and is for discussion purposes only.This presentation and all ancillary documents relating to it (together the "Presentation") was prepared by Lloyds TSB exclusively for you for the purpose of analysing certain potential transactions. The Presentation is being made available on a strictly confidential basis to you and is intended only for the internal use of authorised recipients (“Recipients”) and no part of it may be disclosed to any third party. This Presentation and the information contained herein are the property of Lloyds TSB. Recipients are hereby notified that photocopying, scanning, or any other form of reproduction, or distribution - in whole or in part - to any other person at any time is strictly prohibited without the prior written consent of Lloyds TSB.The information in this Presentation reflects prevailing conditions and our judgment as of this date, all of which are subject to change or amendment without notice and the delivery of such amended information at any time does not imply that the information (whether amended or not) contained in this Presentation is correct as of any time subsequent to its date. Whilst Lloyds TSB have exercised reasonable care in preparing this presentation and any views or information expressed or presented are based on sources they believe to be accurate and reliable, neither Lloyds TSB, nor any of their officers, servants, agents, employees or advisors make any representation or warranty, express or implied, as to the fairness, accuracy, adequacy, completeness or correctness of such information, nor as to the achievement or reasonableness of any projections, targets, estimates, or forecasts and nothing in this Presentation should be relied upon as a promise or representation as to the future. Neither Lloyds TSB nor any of their officers, servants, agents, employees or advisors or any affiliate or any person connected with them accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this Presentation or its contents or otherwise arising in connection therewith. Lloyds TSB undertakes no obligation to update or correct any information contained herein or otherwise to advise as to any future changes to it. Applicable tax, accounting and legal considerations are subject to change and in all cases independent professional advice should be sought in those areas. This Presentation is provided for information purposes only: there has been no independent verification of the contents of this Presentation. It does not constitute or contain investment advice. It is not and shall not be construed as an offer, invitation, recommendation or solicitation to sell, issue, purchase or subscribe for any securities in any jurisdiction or to enter into any transaction. It is not and shall not be construed as an offer to arrange, underwrite, finance, purchase or sell any security, financial instrument, assets, business, or otherwise provide monies to any party. Such offers may only be provided in writing after satisfactory legal, financial, tax, accounting and commercial due diligence, as well as approval from the relevant business and credit committees of Lloyds TSB and/or their affiliates. The information contained in this Presentation is in summary form for the convenience of presentation and may therefore not be complete.Products and services that may be referenced in the Presentation may be provided through affiliates of Lloyds TSB or any person connected with them. Lloyds TSB and their affiliates prohibits employees from offering a favourable research rating or specific price target or changing a rating or target to get a mandate and Lloyds TSB and their affiliates prohibit research analysts from being compensated for involvement in investment banking transactions, except to the extent that such participation is intended to benefit investor clients. Lloyds TSB, their affiliates, their respective directors or officers or persons connected with them may have an interest in any financial instrument mentioned in this Presentation. Lloyds TSB Corporate Markets is a trading name of Lloyds TSB. Lloyds TSB’s registered office is 25 Gresham Street, London EC2V 7HN and it is registered in England and Wales under No. 2065.Lloyds TSB is authorised and regulated in the United Kingdom by the Financial Services Authority.


The Bond Age is upon us

Don’t panic

6 Sources of Capital

It’s a Corporate World out there


The Wall of Worry

CHINA QE 2 PIIGS

G20 Currencies Unemployment

Inflation


MPC swingometer points away from printing cash


5, 10, 11, 12, 13, 15


Acceptilation


Booming local market - £50ld


The Seven Economic ‘R’s

6 Recovery

1 Recession

2 Resuscitate

3 Relapse

4 Recuperate

5 Regenerate

7 Robust


Reboot – turn the economy on and off

Resolute – in approach

8

Rebalancing – will take some time

Retrenchment – Consumers think twice

Rescue – have we done enough

Ramifications – are we ready

Somewhere between two and three

Reduction – deficit


IMPORTANT NOTICE

This presentation does not constitute or imply an offer or commitment whatsoever on the part of Lloyds TSB Bank plc (“Lloyds TSB”). Any such offer may only be made after the negotiation of satisfactory documentation and only after appropriate credit authority has been obtained. The pricing discussed herein is based on our view of current market conditions and is for discussion purposes only.This presentation and all ancillary documents relating to it (together the "Presentation") was prepared by Lloyds TSB exclusively for you for the purpose of analysing certain potential transactions. The Presentation is being made available on a strictly confidential basis to you and is intended only for the internal use of authorised recipients (“Recipients”) and no part of it may be disclosed to any third party. This Presentation and the information contained herein are the property of Lloyds TSB. Recipients are hereby notified that photocopying, scanning, or any other form of reproduction, or distribution - in whole or in part - to any other person at any time is strictly prohibited without the prior written consent of Lloyds TSB.The information in this Presentation reflects prevailing conditions and our judgment as of this date, all of which are subject to change or amendment without notice and the delivery of such amended information at any time does not imply that the information (whether amended or not) contained in this Presentation is correct as of any time subsequent to its date. Whilst Lloyds TSB have exercised reasonable care in preparing this presentation and any views or information expressed or presented are based on sources they believe to be accurate and reliable, neither Lloyds TSB, nor any of their officers, servants, agents, employees or advisors make any representation or warranty, express or implied, as to the fairness, accuracy, adequacy, completeness or correctness of such information, nor as to the achievement or reasonableness of any projections, targets, estimates, or forecasts and nothing in this Presentation should be relied upon as a promise or representation as to the future. Neither Lloyds TSB nor any of their officers, servants, agents, employees or advisors or any affiliate or any person connected with them accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this Presentation or its contents or otherwise arising in connection therewith. Lloyds TSB undertakes no obligation to update or correct any information contained herein or otherwise to advise as to any future changes to it. Applicable tax, accounting and legal considerations are subject to change and in all cases independent professional advice should be sought in those areas. This Presentation is provided for information purposes only: there has been no independent verification of the contents of this Presentation. It does not constitute or contain investment advice. It is not and shall not be construed as an offer, invitation, recommendation or solicitation to sell, issue, purchase or subscribe for any securities in any jurisdiction or to enter into any transaction. It is not and shall not be construed as an offer to arrange, underwrite, finance, purchase or sell any security, financial instrument, assets, business, or otherwise provide monies to any party. Such offers may only be provided in writing after satisfactory legal, financial, tax, accounting and commercial due diligence, as well as approval from the relevant business and credit committees of Lloyds TSB and/or their affiliates. The information contained in this Presentation is in summary form for the convenience of presentation and may therefore not be complete.Products and services that may be referenced in the Presentation may be provided through affiliates of Lloyds TSB or any person connected with them. Lloyds TSB and their affiliates prohibits employees from offering a favourable research rating or specific price target or changing a rating or target to get a mandate and Lloyds TSB and their affiliates prohibit research analysts from being compensated for involvement in investment banking transactions, except to the extent that such participation is intended to benefit investor clients. Lloyds TSB, their affiliates, their respective directors or officers or persons connected with them may have an interest in any financial instrument mentioned in this Presentation. Lloyds TSB Corporate Markets is a trading name of Lloyds TSB. Lloyds TSB’s registered office is 25 Gresham Street, London EC2V 7HN and it is registered in England and Wales under No. 2065.Lloyds TSB is authorised and regulated in the United Kingdom by the Financial Services Authority.

Documents

Life, the world and Interest Rates East Midlands Councils 7 April 2011 Simon Cossey Director, Financial Markets